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Internship Presentation - Open Accruals
- 1. Corporate ReorganizationandPortfolio Accounting Hetal Patel Operations Intern April 6, 2009
- 2. Overview
- 3. Risks
- 5. Creating an Open AccrualCorporate Reorganization
- 6. Open AccrualsWhy they exist
- 7. Open Accruals ReportCurrent Report Original Goal: Generate a list of all open accruals so Portfolio Accounting can settle them Features: Ticker Account Type Transaction Type Market Value Settled Accounting Date Settlement Date Last Recon date
- 9. Includes closed & SMA accounts, duplicates, some that are already settled
- 10. No active process to settle open accruals
- 11. Used when someone has time
- 14. Dividends Tab – check to see if these open accruals are exceptions
- 15. Transaction Poster – check to see if the dividend was posted as MI
- 16. Log Notes – check to see if account transferred
- 17. Time Required
- 20. Time Required
- 23. Include Market Value of Account
- 24. Include Open Accrual Value % of the Market Value
- 26. Further exposure to Excel, PowerPoint
- 27. Teamwork
- 31. APPENDIX- The Morning Report
- 32. APPENDIX- The New or Change Report
Notes de l'éditeur
- I wanted to begin by saying thank you for coming here this morning to view my presentation and to support the internship program. As you know, my name is Hetal Patel. I am currently a graduating senior at the University of California, San Diego pursuing a bachelors of science degree in Management Science, which is part of the Economics department. I have been an operations intern here at Brandes Investment Partners since October of last year, and have explored the departments of Portfolio Accounting and Corporate Reorg thus far. Through my experience in both departments and with the help and guidance of supervisors, team leaders, and other members of the departments, I learned a great deal about and improved my understanding of the operations division. Today, I wanted to share with you one of the many things that I learned and explored while working in both departments, with the hope that my proposals will prove valuable to the operations division.
- Today, I am going to discuss some of the risks involved in both Reorg and Portfolio Accounting. I will focus on just one in particular – open accruals, and make proposals to mitigate that risk.
- In Reorg, one risk is corporate action miscommunication, especially between internal and external entities. This can lead to missed opportunities for clients. [RESEARCH FURTHER]Reorg has a verification process so that there are multiple checks to prevent errorIn Portfolio Accounting, which is the final checkpoint of transactions and trades, one risk is discrepancies in reconciliation. In the situation that the cash balance on our system does not match with the custodian or broker statements, the problem arises that we may make trades on cash that we may or may not have. A similar risk is discrepancies in holdings. If the positions on our system don’t match those on the statements, then we risk selling shares that the account does not hold. However, the risk I will be focusing on today is the risk of open accruals, starting with a brief background.
- Open accruals are pending transactions posted by Reorg that need to be settled for cash by Portfolio Accounting after the confirmation of actually receiving the cash, which is reflected on the account statements. Open accruals become an issue when they are on our system, the Recon application, for a long period of time. The most significant consequence of open accruals is that it inflates the market value by the amount of the open accrual. Because we bill our client based on the market value of the account, this problem leads to overbilling of the client. Open accruals that have been on our system for a long period of time lead to inaccurate reflection of account activity.
- So, how are open accruals created? Daily, the Data Services team in Reorg feeds the Bloomberg terminal with a list of active securities that Brandes trades called the Active SIR report, or Active Securities Report. Bloomberg then creates a report of upcoming corporate actions and those that are going ex today for those securities.The Master Posting Sheet, an active spreadsheet, includes all the cash dividends for all active securities that we are aware of with the date they are going ex and the pay date. Daily, Data Services checks to see if there are any dividends that are going ex for that day and checks this with the Morning Report. This report, called the Morning Report, lists the cash dividends that are going ex today. The Data Services team processes the cash dividends on the day that they go ex. There is also a New or Change report that is derived from Bloomberg that includes any new or changed information of events dealing with those securities. With this information, Reorg updates the Master Posting Sheet. The final step in creating an open accrual is posting those dividends that are going ex today into STAR as an open accrual.Overnight, these dividends postings are pushed into the Recon application and Portfolio Accounting sees them as an open accrual in the Accruals tab. Portfolio Accounting then settles these open accruals as cash when they have confirmation that the cash was received by reconciling our system against the statement.
- IfReorg posts dividends the day they go ex, and Portfolio Accounting reconciles accounts monthly, how are there so many old open accruals? There are a number of reasons as to why old open accruals exist on our system. In the situation that Reorg does not have the pay date for dividends, they forecast the pay date when posting dividends based on historical pay dates for those companies, derived from Bloomberg. Sometimes, however, these forecasted pay dates are incorrect, and sometimes companies do not pay out the cash dividends until months later. When there are long gaps between the ex date and the pay date, the dividends will sit as open accruals for a long period of time. There is also the possibility that accounts transfer during that period so the original account could have an open accrual.Sometimes, companies cancel the dividend after the ex date, so they can sit as an open accrual, until we are informed of the company’s decision.Some firms do not credit their accounts for very small dividend amounts such as those accounts that hold only a few shares with very minute dividend amounts. Many times, it is an issue of an error in data entry, when someone posts dividends as a Miscellaneous Income/Security or Other instead of settling the accrual.Also, as is often the case with TBH and BRP, multiple dividends that are open accruals on our system are grouped together by the firm or the PA associate as a single settled accrual.These are only a few scenarios of many possibilities that touch upon the reason for old open accruals. Anything that changes after the ex date, PA deals with.If pay date changes before the ex date, Reorg updates Master Posting sheet
- The original goal of the Open Accruals Report that we have now was to generate a list of open accruals that Portfolio Accounting could settle. Some information that the report includes is the ticker, the types of account and transaction, the market value settled, and the accounting, settlement, and last recon dates. This report was run for the first time last November since 2004. It is currently obtained by submitting a Systems ticket, and can take a few hours to generate because of the length. Because of the massive volume of open accruals, there are 4 separate files separated by the 4 quarters in 2008. The report lists 27, 126 total open accruals from 2008.
- Although we have this report, it has shortcomings that makes it an unmanageable report that we can’t and don’t use. First of all, it lists 27,126 open accruals!! It would take countless hours of dedication to settle the thousands of accruals across hundreds of accounts.After looking further into the report, I noticed that the list includes closed accounts and SMA accounts, which would not require us to settle those open accruals. It includes countless duplicates across the 4 quarters making the volume seem higher than it actually is. It also still has on the list those open accruals that have been settled since the report was requested, so there is no way of knowing which ones were settled until manually checking the Accruals tab in the Recon app. Also, because there are infrequent requests for the report, we would be working off an outdated report that would continue to include those open accruals that have been settled. Currently, there is no set process of using the report to settle these open accruals. It is used only when someone has the time to go through the list, but even that does not happen often since there is usually a high volume of statements to reconcile.After taking these shortcomings into consideration, I would like to make two proposals – one regarding the process of settling open accruals and the other regarding the open accrual report.
- Include prioritizing the ones with a higher value…either a market valueModify report: take out closed accounts based on certain dates, include market value + a column that include what % of the market value the open accrual is.Include training process – email to inform, brief meeting with follow up email PROPOSAL – PROCESSPROPOSAL – REPORT INCLUDE PROJECT GOALS
- Include prioritizing the ones with a higher value…either a market valueModify report: take out closed accounts based on certain dates, include market value + a column that include what % of the market value the open accrual is.PROPOSAL – PROCESSPROPOSAL – REPORT